Post-Theranos, Can Silicon Valley and Biomed Get Along?

KQED Science

Monday, April 24th, 2017

Oil and water. Plaid and polka dots. Fish and peanut butter. We all know these things donâ€™t go together.

Itâ€™s worth asking how well the â€śget in hard, cash out fastâ€ť tech ethos du jour fits in with the plodding, regulation-heavy culture of health care. Itâ€™s a valid question in the wake of the Theranos flameout, in which a Silicon Valley entrepreneur with no medical background, lots of hype and very little scientific scrutiny raised copious venture backing toÂ revolutionize blood testing, only to see the technology fail in market.

Tech culture rewards disruptors. And those who can pivot on a dime.

But the process of getting a new drug or medical device to market is long and convoluted, a necessary drag. Thereâ€™s the academic papers subject to peer review, the many stages of clinical testing and government approval. Yes, it all takes years, but it makes the science transparent.

By contrast, Theranos CEO Elizabeth Holmes was secretive about how the companyâ€™s technology worked, and the venture firms that pumped millions into Theranos either didnâ€™t have the details, or werenâ€™t scientifically literate enough to ask the questions that might have raised red flags.

‘I think Silicon Valley is used to this kind of thing: take an idea that isnâ€™t fully formed and get it out into the world without validation, and maybe it fails later on.’ — Dr. Norman Paradis, Darmouth College

â€śSo the first thing that I did as a researcher, as a scientist, is check the scientific literature,â€ť he recently told NPR.Â â€śHow much do we know about what they [Theranos] do? And I couldnâ€™t find even a single paper.â€ť

Dr. Norman Paradis is aÂ professor of medicine at Dartmouth College who works as a consultant for diagnostic startups. He has given presentations to venture firms, and he says the fact that Theranos got hundreds of millions of dollars and went to market without proving itself makes it â€śa Silicon Valley event, and not a biomedical event.â€ť

â€śI think Silicon Valley is used to this kind of thing: take an idea that isnâ€™t fully formed and get it out into the world without validation, and maybe it fails later on.â€ť Whereas in the biomedical field you almost always need to have data early on.

So what happened? The wrong people were asking the questions, says Paradis. â€śIf you look at the list of who invested in Theranos, none of the venture capitalists who regularly do biomedical diagnostics were investors,â€ť he says. TheÂ firms with relevant medical expertise steered clear. â€śNormally you show up to present an idea to these firms,Â they really know what youâ€™re talking about,â€ť he added.

At a conference it hosted in January, The Economist asked a panel of venture capitalists about the broader perception of a culture clash between scientists and Silicon Valley entrepreneurs â€¦ and the Theranos example, specifically. The panelists represented three firms that invest in life science and healthcare ventures: Lisa Suennen from GE Ventures, David Sabow from Silicon Valley Bank, and Emily Melton from DFJ Venture Capital.

Hereâ€™s the full video:

The panelists agreed that some of the accepted rules that govern much of todayâ€™s startup development and commercialization seem to run counter to those of science-based startups in medicine and biotech. And that there is a tension between the two sides.

â€śItâ€™s a solution sell versus a product sell,â€ť said Melton from DFJ. â€śInvestors think of things as products, whereas people on the health care side think of solutions.â€ť

Suennen from GE Ventures agreed. â€śOn the tech side, people are practically allergic to providing services,â€ť she said.Â But in the case of health care, â€śYou canâ€™t take the people out of caring for people.â€ť

And, said Suennen, the timelines involved are vastly different.

â€śIn the health care world, the time horizon for investments to mature and exit is pretty long compared to other marketplaces â€“ usually 7 to 10 years,â€ť Suennen added.

Melton noted that wonâ€™t deter some venture firms from investing in health care. â€śWeâ€™re willing to be more patient if we feel like thereâ€™s a great opportunity at the end,â€ť she said, adding that, â€śWe do need to have a clear path to commercialization.â€ť

Of course a startup canâ€™t come to market without jumpingÂ through the hoops â€” specifically, the FDA approval process. Thatâ€™s why these panelists said regulation is a â€” gasp! â€” good thing. â€śYou need regulation in health care, for the most part, to make the market grow,â€ť Suennen said.

Everyone on the panel agreed that the next big thing in digital health or biomedicine will not emerge until tech innovators and medical experts work together: venture companies needÂ the new ideas from the tech side combined with the health care knowledge. And thatâ€™s starting to happen.

Since most biomedical startups are still in early funding stages, it will take a few years to see a new model of collaboration emerge and produce significant breakthroughs in biomed.

â€śYou need that life sciences perspective to understand how has it been done, what works, what doesnâ€™t â€” in order to totally revolutionize it,â€ť said Sabow, from Silicon Valley Bank. â€śPeople who are trying to do it without that multidimensional perspective are going to spend a lot of money, get a lot of buzz, but not necessarily have the revolutionary impact theyâ€™re hoping for.â€ť

There was some awkwardness when Melton was asked about Theranos. Her firm, DFJ, pumped $500,000 in seed money into the venture early on. Interestingly, she all but said that her firm did not have access to data from Theranos when they cut the check.

â€śI think transparency is critical. You canâ€™t mess around with peopleâ€™s lives and you canâ€™t put products out there without being very transparent about what youâ€™re doing. Data is very critical, and letting people have access to the data.â€ť

The Theranos debacle has a â€śtragicâ€ť element that goes beyond hundreds of lost jobs and lost investment, says Paradis. For $750 million, you could have funded at least seven good startups, he says. â€śItâ€™s almost impossible to get a complete new diagnostic test developed, because funders are so conservative [when it comes to medical products],â€ť he says. â€śThatâ€™s even less likely to happen now.â€ť